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Feb 19, 2009

Oil States Announces Fourth Quarter Earnings of $1.74 per Share Before Goodwill Impairment

Oil States Announces Fourth Quarter Earnings of $1.74 per Share Before Goodwill ImpairmentHOUSTON, Feb. 19 /PRNewswire-FirstCall/ -- Today, Oil States International, Inc. (NYSE: OIS) reported net income for the quarter ended December 31, 2008 of $7.0 million, or $0.14 per diluted share, compared to $48.2 million, or $0.95 per diluted share reported in the fourth quarter of 2007. The fourth quarter 2008 results included a non-cash, pre-tax charge of approximately $85.6 million, or $1.60 per diluted share after-tax, related to the impairment of a portion of the Company's goodwill. Excluding the impairment charges related to the write off of the full amount of its drilling and tubular services goodwill, the Company generated $86.8 million in net income, or $1.74 per diluted share, on $901.1 million of revenues and $162.9 million of Adjusted EBITDA in the fourth quarter of 2008. Excluding the goodwill impairment charges, Oil States recognized year-over-year growth in quarterly revenues and Adjusted EBITDA (EBITDA is defined as net income plus interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding the goodwill impairment charges) of 55% and 72%, respectively, in the fourth quarter of 2008(A) with year-over-year growth recognized in each of its business lines led by Tubular Services and Accommodations.

"We had a record year in 2008 with each of our business lines having record or near record earnings," stated Cindy B. Taylor, Oil States' President and Chief Executive Officer. "In particular, our Tubular Services and Accommodations segments demonstrated strong year-over-year growth. However, 2009 will be a difficult year characterized by significantly reduced operational and financial results, as the global economic recession and reduced capital market liquidity have negatively impacted commodity prices and our customers' spending plans. Our current expectation for first quarter 2009 earnings is in a range of $0.96 to $1.06 per diluted share."

Mrs. Taylor continued, "We have substantially reduced our planned capital expenditures for 2009 as compared to our 2008 spending and are reducing our cost structure in response to the market downturn. We expect all of our businesses to be negatively impacted in 2009 with the most immediate impact occurring in our Tubular Services and Drilling businesses."

Mrs. Taylor concluded, "We have a strong liquidity position. At year end, we had $196 million of availability which has grown to $280 million today under our $500 million credit facility. We have no near term debt maturities as our credit facility extends to December 2011, and the first put/call date for our convertible notes is July 2012. We expect our liquidity strength to allow us to capitalize on opportunities the downturn presents."

The Company recognized an effective tax rate of 85.2% in the fourth quarter of 2008 compared to 30.1% in the fourth quarter of 2007. The effective tax rate in the fourth quarter of 2008 was negatively impacted by a significant amount of the goodwill impairment charges which were non-deductible. Excluding the goodwill impairment, the effective tax rate for the fourth quarter of 2008 would have approximated 34.9%. The effective tax rate in the fourth quarter of 2007 benefited from statutory tax rate reductions in Canada.

For the full year 2008, the Company reported revenues of $2.9 billion and EBITDA of $495.6 million which resulted in $222.7 million of net income, or $4.33 per diluted share. Excluding the goodwill impairment charges, the Company reported $581.3 of Adjusted EBITDA and $302.5 million of net income, or $5.88 per diluted share. The Company reported revenues of $2.1 billion and EBITDA of $385.5 million for the full year 2007 which resulted in net income of $203.4 million, or $3.99 per diluted share. The full year periods for 2008 and 2007 included gains on the sale of Boots & Coots common stock of $0.08 and $0.17 per diluted share, respectively.

BUSINESS SEGMENT RESULTS

(Unless otherwise noted, the following discussion compares the quarterly results from the fourth quarter of 2008 to the results from the fourth quarter of 2007. In order to present a more meaningful comparison of the Company's operating results, the fourth quarter 2008 results exclude the goodwill impairment charges.)

Well Site Services

Excluding the $22.8 million goodwill impairment charge taken in the drilling business, Well Site Services generated revenues of $235.7 million and Adjusted EBITDA of $80.1 million in the fourth quarter of 2008, compared to $209.1 million and $67.2 million, respectively, in the fourth quarter of 2007, representing year-over-year increases of 13% and 19%, respectively. The increase in EBITDA was primarily due to improved results from the Company's oil sands accommodations and drilling operations.

For the fourth quarter of 2008, the accommodations business reported revenues of $94.6 million and EBITDA of $35.3 million, compared to revenues and EBITDA of $91.5 million and $29.0 million, respectively, in the fourth quarter of 2007. Accommodations revenue and EBITDA increased 3% and 22%, respectively, primarily due to the significant increase in average available room capacity at the Company's four major oil sands lodges and strong accommodations activity in the U.S. EBITDA growth in accommodations was partially offset by weaker Canadian dollar and weaker year-over-year accommodations activity related to conventional Canadian drilling activity.

Drilling services generated revenues and Adjusted EBITDA of $44.0 million and $14.2 million, respectively, in the fourth quarter of 2008 compared to $35.3 million of revenues and $10.1 million of EBITDA in the fourth quarter 2007. These year-over-year increases in drilling services were primarily the result of three additional rigs built over the past twelve months, increased utilization and higher cash margins compared to the fourth quarter of 2007.

Rental tools generated $97.0 million of revenues and $30.5 million of EBITDA in the fourth quarter of 2008 compared to revenue of $82.3 million and EBITDA of $28.1 million in the fourth quarter of 2007. This year-over-year growth was due to increased completion activity in the U.S., particularly in wellhead isolation, well testing and thru-tubing work.

Offshore Products

In the fourth quarter of 2008, Offshore Products generated $141.4 million of revenues and $25.6 million in EBITDA compared to $141.2 million of revenues and $21.3 million in EBITDA in the fourth quarter of 2007. The increase in EBITDA year-over year is primarily due to $5.0 million of project cost overruns recognized in the fourth quarter of 2007 and product mix related to increased rig, vessel and subsea pipeline equipment orders partially offset by lower bearing and connector product shipments. Backlog totaled $362.1 million at December 31, 2008 down from $420.5 million at September 30, 2008 and roughly flat with the $362.2 million at December 31, 2007.

Tubular Services

Excluding the $62.9 million goodwill impairment charge taken, Tubular Services generated revenues and Adjusted EBITDA of $524.0 million and $63.9 million, respectively, during the fourth quarter of 2008 compared to revenues of $230.6 million and EBITDA of $11.0 million in the fourth quarter of 2007. Tubular Services' OCTG shipments increased 21% to 166,200 tons from 137,000 tons in the fourth quarter of 2007. Gross margins in the fourth quarter of 2008 increased to 12.8% from 5.7% in the fourth quarter of 2007 because of higher year-over-year OCTG mill pricing. The Company's OCTG inventory increased to $396.5 million from $276.9 million at September 30, 2008 due to the receipt of inventory in satisfaction of customer orders.

Goodwill Impairment

In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the Company concluded that the goodwill amounts previously recorded in the Drilling and Tubular Services reporting units were impaired in their entirety. The total goodwill impairment charge recognized in the fourth quarter of 2008 was $85.6 million before taxes and $79.8 million after-tax. The majority of the impairment charge is related to goodwill recorded prior to or in conjunction with the Company's initial public offering in 2001. This non-cash charge does not impact the Company's liquidity position, its debt covenants or the Company's cash flows.

Oil States International, Inc. is a diversified oilfield services company. With locations around the world, Oil States is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. Oil States is organized in three business segments - Well Site Services, Offshore Products and Tubular Services, and is publicly traded on the New York Stock Exchange under the symbol OIS. For more information on the Company, please visit Oil States International's website at http://www.oilstatesintl.com.

The Company will be hosting a conference call to discuss the results for the fourth quarter of 2008 on Friday, February 20, 2009 at 11:00 am Eastern time. This call is being webcast and can be accessed at Oil States' web site at http://www.oilstatesintl.com. Participants may also join the conference call by dialing (800) 447-0521 and using the passcode of 23632564. A replay of the conference call will be available one hour after the completion of the call by dialing (888) 843-8996 and entering the passcode of 23632564.

This press release contains and the associated conference call will contain forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included therein will be based on then current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the oilfield service industry and other factors discussed within the "Business" section of the Form 10-K for the year ended December 31, 2007 filed by Oil States with the SEC on February 22, 2008 and within the Company's subsequent SEC filings.


                     Oil States International, Inc.
         Unaudited Condensed Consolidated Statements of Income
                (in thousands, except per share amounts)
                              (unaudited)

                          Three Months Ended     Twelve Months Ended
                             December 31,           December 31,
                         -------------------     -------------------
                            2008      2007        2008        2007
                            ----      ----        ----        ----

    Revenues            $901,056  $580,971  $2,948,457  $2,088,235
    Costs and expenses:
      Cost of sales      702,100   456,331   2,234,974   1,602,213
      Selling, general
       and administrative
       expenses           37,504    31,989     143,080     118,421
      Depreciation and
       amortization
       expense            26,863    21,383     102,604      70,703
      Impairment of
       goodwill           85,630         -      85,630           -
      Other operating
       income               (928)     (373)     (1,586)       (888)
                            ----      ----      ------        ----
    Operating income      49,887    71,641     383,755     297,786

    Interest expense      (3,613)   (5,191)    (17,530)    (17,988)
    Interest income          805       909       3,561       3,508
    Equity in earnings
     of unconsolidated
     affiliates              868     1,307       4,035       3,350
    Gain on sale of
     workover services
     and resulting
     investment                -         -       6,160      12,774
    Other income /
     (expense)              (331)      333        (922)        928
                            ----       ---        ----         ---
      Income before
       income taxes       47,616    68,999     379,059     300,358
    Income tax
     provision           (40,591)  (20,799)   (156,349)    (96,986)
                         -------   -------    --------     -------
      Net income          $7,025   $48,200    $222,710    $203,372
                          ======   =======    ========    ========

    Net income per share
      Basic                $0.14     $0.97       $4.49       $4.11
      Diluted              $0.14     $0.95       $4.33       $3.99

    Weighted average
     number of common
     shares outstanding
      Basic               49,622    49,730      49,622      49,500
      Diluted             49,806    50,994      51,414      50,911



                          Oil States International, Inc.
                            Consolidated Balance Sheets
                                  (in thousands)
                                    December 31,  September 30,   December 31,
                                        2008           2008           2007
                                        ----           ----           ----
    Assets                           (unaudited)   (unaudited)      (audited)
      Current assets
        Cash and cash equivalents        $30,199        $55,621       $30,592
        Accounts
         receivable, net                 575,982        502,807       450,153
        Inventories, net                 612,488        463,086       349,347
        Prepaid expenses and
         other current assets             18,815         13,475        35,575
                                          ------         ------        ------
           Total current
            assets                     1,237,484      1,034,989       865,667
      Property, plant and
       equipment, net                    695,338        723,626       586,910
      Goodwill, net                      305,441        399,151       391,644
      Investments in
       unconsolidated affiliates           5,899          6,255        24,778
      Other non-current assets            55,085         56,940        60,627

                                      ----------     ----------    ----------
    Total assets                      $2,299,247     $2,220,961    $1,929,626
                                      ==========     ==========    ==========

    Liabilities and
     stockholders' equity
      Current liabilities
        Accounts payable and
         accrued liabilities            $371,789       $347,450      $239,119
        Current portion of long-
         term debt                         4,943        179,941         4,718
        Income taxes                      52,546         24,392            43
        Deferred revenue                 105,640         83,585        60,910
        Other current liabilities          1,587          1,220           121
                                           -----          -----           ---
           Total current
            liabilities                  536,505        636,588       304,911
      Long-term debt (B)                 474,948        236,574       487,102
      Deferred income  taxes              55,646         52,966        40,550
      Other noncurrent
       liabilities                        13,155         14,293        12,236
                                          ------         ------        ------
           Total
            liabilities                1,080,254        940,421       844,799

      Stockholders' equity
        Common stock                         526            526           522
        Additional paid-in capital       425,284        422,044       402,091
        Retained earnings                913,423        906,398       690,713
        Accumulated other
         comprehensive income / (loss)   (28,409)        37,854        73,036
        Treasury stock                   (91,831)       (86,282)      (81,535)
                                         -------        -------       -------
           Total stockholders'
            equity                     1,218,993      1,280,540     1,084,827

                                      ----------     ----------    ----------
    Total liabilities and
     stockholders' equity             $2,299,247     $2,220,961    $1,929,626
                                      ==========     ==========    ==========



                         Oil States International, Inc.
                                  Segment Data
                                 (in thousands)
                                  (unaudited)

                                 Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                                -------------------      -------------------
                                    2008      2007        2008        2007
                                    ----      ----        ----        ----

    Revenues
        Accommodations           $94,612   $91,535    $427,130    $312,846
        Rental Tools              97,041    82,321     355,809     260,404
        Drilling and Other        44,023    35,268     177,339     143,153
                                  ------    ------     -------     -------

      Well Site Services         235,676   209,124     960,278     716,403
      Offshore Products          141,385   141,209     528,164     527,810
      Tubular Services           523,995   230,638   1,460,015     844,022
                                 -------   -------   ---------     -------
    Total Revenues              $901,056  $580,971  $2,948,457  $2,088,235
                                ========  ========  ==========  ==========

    Adjusted EBITDA (A)
        Accommodations           $35,335   $28,968    $156,223    $109,270
        Rental Tools              30,535    28,138     111,224      96,006
        Drilling and
         Other (C) (D)            14,196    10,092      68,096      66,983
                                  ------    ------      ------      ------

      Well Site Services (C)      80,066    67,198     335,543     272,259
      Offshore Products           25,598    21,342     100,357      93,444
      Tubular Services (D)        63,913    10,974     172,086      40,763
      Corporate and
       Eliminations               (6,660)   (4,850)    (26,724)    (20,925)
                                  ------    ------     -------     -------
    Total Adjusted
     EBITDA (C) (D)             $162,917   $94,664    $581,262    $385,541
                                ========   =======    ========    ========

    Operating Income / (Loss)
        Accommodations           $27,210   $21,056    $120,972     $85,347
        Rental Tools              20,860    20,536      75,787      71,973
        Drilling and Other (D)     8,521     5,789      40,200      40,508
                                   -----     -----      ------      ------

      Well Site Services          56,591    47,381     236,959     197,828
      Offshore Products           22,624    18,572      89,280      82,460
      Tubular Services (D)        62,800    10,494     169,333      38,467
      Corporate and
       Eliminations               (6,498)   (4,806)    (26,187)    (20,969)
                                  ------    ------     -------     -------
    Total Operating Income (D)  $135,517   $71,641    $469,385    $297,786
                                ========   =======    ========    ========



                Oil States International, Inc.
               Additional Quarterly Segment and
                        Operating Data
                          (unaudited)

                                        Three Months Ended
                                            December 31,
                                          2008      2007
                                          ----      ----

    Supplemental Operating Data
      Land Drilling
       Operating Statistics
        Average Rigs Available             37        34
        Utilization                      79.1%     74.3%
        Implied Day Rate
         ($ in thousands per day)       $16.4     $15.2
        Implied Daily Cash Margin
         ($ in thousands per day)        $5.5      $4.3

      Offshore Products Backlog
       ($ in millions)                 $362.1    $362.2

      Tubular Services Operating Data
        Shipments (Tons in thousands)   166.2     137.0
        Quarter end Inventory
         ($ in thousands)            $396,462  $191,374

    (A) The term EBITDA consists of net income plus interest, taxes,
        depreciation and amortization.  EBITDA is not a measure of financial
        performance under generally accepted accounting principles.  You
        should not consider it in isolation from or as a substitute for net
        income or cash flow measures prepared in accordance with generally
        accepted accounting principles or as a measure of profitability or
        liquidity.  Additionally, EBITDA may not be comparable to other
        similarly titled measures of other companies.  The Company has
        included EBITDA as a supplemental disclosure because its management
        believes that EBITDA provides useful information regarding our ability
        to service debt and to fund capital expenditures and provides
        investors a helpful measure for comparing its operating performance
        with the performance of other companies that have different financing
        and capital structures or tax rates.  The Company uses EBITDA to
        compare and to monitor the performance of its business segments to
        other comparable public companies and as a benchmark for the award of
        incentive compensation under its annual incentive compensation plan.
        Adjusted EBITDA is a non-GAAP measure which excludes the goodwill
        impairment charges recognized in the fourth quarter of 2008.  The
        following table sets forth a reconciliation of EBITDA to net income,
        which is the most directly comparable measure of financial
        performance calculated under generally accepted accounting principles:


            Reconciliation of GAAP to Non-GAAP Financial Information
                                 (in thousands)
                                  (unaudited)

                                Three Months         Twelve Months
                             Ended December 31,     Ended December 31,
                             ------------------     ------------------
                                 2008     2007      2008      2007
                                 ----     ----      ----      ----

    Net income                 $7,025  $48,200  $222,710  $203,372
    Income tax expense         40,591   20,799   156,349    96,986
    Depreciation and
     amortization              26,863   21,383   102,604    70,703
    Interest income              (805)    (909)   (3,561)   (3,508)
    Interest expense            3,613    5,191    17,530    17,988
                                -----    -----    ------    ------
      EBITDA                  $77,287  $94,664  $495,632  $385,541
    Goodwill impairment        85,630        -    85,630         -
                               ------      ---    ------       ---
      Adjusted EBITDA        $162,917  $94,664  $581,262  $385,541
                             ========  =======  ========  ========

    (B) As of December 31, 2008, the Company had approximately $195.9 million
        available under its revolving credit facility.
    (C) Includes $6.2 million and $12.8 million gains on sale of Boots & Coots
        common stock in the full years 2008 and 2007 results, respectively.
    (D) Drilling EBITDA and Operating Income exclude $22.8 million goodwill
        impairment charge.  Tubular Services EBITDA and Operating Income
        exclude a $62.9 million goodwill impairment charge.  Consolidated
        EBITDA and Operating Income exclude an $85.6 million goodwill
        impairment charge.

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